New requirements under Ukrainian anti-corruption legislation for the private sector: how to comply

March 2015 | EXPERT BRIEFING | FRAUD & CORRUPTION

financierworldwide.com

In Ukraine, a headline declaring that the chief executive of a large Ukrainian company has been sentenced to prison for bribery is unlikely to appear. To date, Ukrainian law-enforcement authorities have not taken any noticeable actions against private bribery. And the main reason is the high level of corruption within the public sector itself.

That said, recently there have been some signs that anti-corruption enforcement may soon begin. Domestically there has been an increasing desire to see the authorities fight corruption. There has also been a sustained anti-corruption push from both the European Union and a number of international financial institutions. These combined factors have resulted in significant changes to Ukrainian anti-corruption legislation, and the decision to establish two distinct anti-corruption bodies. One of the bodies will perform monitoring functions and will be able to sanction companies for violations of anti-corruption legislation. The other will investigate bribery in the public sector. However, the private sector will also likely be affected.

So what are the main requirements that apply to private companies? The new anti-corruption law, which will come into force in April, contains separate chapter designed to regulate the private sector. Its provisions set certain rules in relation to any business, but focus mainly on requirements for companies taking part in public procurement.

The main requirement among general rules is that companies, regardless of sector, will be required to undertake necessary and justified measures to prevent corruption. Failure to enforce anti-corruption measures may see the company to face criminal liability charges and suffer significant fines, up to double any income obtained as a result of corrupt activity.

Obviously, Ukrainian legislators have been inspired by the UK Bribery Act which operates along similar lines and procedures. However, Ukrainian law has not expanded on the scope of measures to be introduced, while the UK Ministry of Justice issued a specific guidance to help companies better understand the Bribery Act requirements. Thus, until there is an issuance of similar guidance from Ukrainian authorities, it would be reasonable for companies to rely on the UK’s experience when establishing their compliance systems.

Private companies are also required to assess corruption risks and undertake respective actions on a regular basis. One more requirement is that companies should oblige employees to refrain from bribery offences, as well as to report any instances of corruption and any conflict of interests. Unfortunately, the law does not specify how companies should implement these anti-corruption measures. It may be done either by means of introducing respective provisions into labour contracts, or in a more widespread and reasonable approach: through the introduction of an anti-corruption policy.

Compared to the general requirements that are applicable to any private company, new rules for suppliers in public procurement are much stricter. Suppliers will be obliged to undertake specific anti-corruption measures. If they fail to do so they will be prohibited from participating in the tender.

Companies will need to adopt profound anti-corruption policies moving forward. The law requires specific provisions to be included in any such policy and the list is quite impressive. A number of the measures are not typical – for example, the policy should contain a procedure for advising on policy enforcement and a procedure for reporting corruption offences to law enforcement authorities. These measures may force companies which have already established high quality compliance standards to undertake reviews of their policies. Some rules are not clear enough and therefore may result in ambiguous interpretations. In such cases it would be reasonable to apply the widest interpretation possible in order to minimise potential risks. The law does not, however, specify the means to check whether a company has adopted an anti-corruption policy. It is not required to provide any procuring entity, for example, with a copy of the policy. One of the ways may be that the supplier will need to provide written confirmation only. At the same time, the monitoring anti-corruption body may audit the supplier and, if it failed to adopt a proper anti-corruption policy, pursue the company for violation of the law, which subsequently will lead to the company losing its right to participate in the tender process.

Furthermore, companies will be required to appoint the person responsible for implementing the anti-corruption policy. The law has set forth a number of specific criteria governing such a person, including that he or she should be over 30 years of age and must hold a degree in law or economics. These criteria will definitely dismiss some compliance professionals employed by companies participating in public tenders. In our opinion, the rule is hardly justified given that the age threshold for Ukrainian judges or People’s Deputies is significantly lower, while the scope of authority is incomparable.

There are other requirements too, such as obligations to discuss the policy with the company’s employees before its adoption, as well as the introduction of anti-corruption clauses into labour agreements and internal labour regulations. Again, the law is not specific enough about how the policy should be discussed, either verbally or by electronic means, or which clauses should be implemented into labour documentation, which gives companies certain leeway.

Evidently, the law has some important messages. For suppliers in public procurement, it would be impossible for firms to participate in tenders if they fail to introduce anti-corruption policies or appoint an individual responsible for compliance. For a private company, the time has come to undertake certain anti-corruption efforts. We will see in the future whether there will be a real enforcement effort and real sanctions imposed for unethical behaviour. In the meantime, companies would be advised to ensure that they are well-prepared to withstand potential blows.

Lana Sinichkina is head of the anti-corruption & compliance practice and Igor Svitlyk is an associate at Arzinger Law Office. Ms Sinichkina can be contacted on +38 044 390 55 33 or by email: lana.sinichkina@arzinger.ua. Mr Svitlyk can be contacted on +38 044 390 55 33 or by email: igor.svitlyk@arzinger.ua.

Lana Sinichkina and Igor Svitlyk

Arzinger Law Office